Blasius Industries, Inc. v. Atlas Corp
Blasius Industries, a 9% shareholder in the defendant.
The standard of review should be the Schnell standard. (If the purpose of the actions are to entrench, then the actions are inequitable.)
The corporation says that the business judgment rule should apply (if a board takes an action that the action is informed, it takes the decision in a disinterested way, and that it has the belief this is the best for the board, then the court takes a very deferential standard to the action.)
The plaintiff was attempting to take add a number of directors to the board of the defendant. This would given them a majority of the directors. After this they were hoping to do a significant restructuring of the company. The defendant, in response, tried to appoint two directors to the board which would prevent the plaintiff from attaining a majority. (They were going to try to do this by amending the by-laws to increase the board from size of 7 to size of 9. The maximum size of a board is 15.)
The court states that although it thinks that the management is doing what is in the best interest of the company, this action should not be allowed because it interferes with the democracy that a corporation must operate with.
The court says that in this case Schnell doesn't hold because he thinks that they board was acting in good faith. Schnell is limited to be used when there is a factual determination that the board's purpose was entrenchment (which was not the case here).
The court says that the business judgment rule does not apply because this not about how to use the corporate assets and property, rather it is how the power is allocated.
Since neither of these standards apply, the court uses a compelling justification standard (the management can take actions that can affect the shareholder franchise in a way that fundamentally effects the way shareholders elect the board only if they have a compelling justification to do so.)
In this case, the defendant does not have a compelling enough reason to entrench themselves.
- Why did Atlas take these particular steps in order to takeover?